Kingfisher chief executive Sir Geoffrey Mulcahy attempted to shrug off the disappointment of losing Asda to American giant Wal-Mart last week with the opening of a B&Q store in Shanghai.
The opening, which is the latest in a line of extensions of the B&Q brand abroad, is part of Mulcahy’s plans to make his company a truly international retailer.
A valuable part in achieving that goal has been removed following the collapse of Mulcahy’s £6bn play for Asda, after Wal-Mart blew its offer out of the water with an offer that topped it by £700m.
The Asda takeover would have allowed Kingfisher to develop hypermarkets in Europe based on the continental model of a large food offer boosted by electricals and general merchandise lines.
Mulcahy’s week has not been improved by the departure of trading director Geoff Brady, who was part of the team leading Big W, Kingfisher’s own hypermarket project.
Brady would have helped develop the Big W format, which is seen as Kingfisher’s answer to Wal-Mart’s value-led, all-encompassing retail sheds. Big W offers a full range of Woolworths’ lines combined with lines from Kingfisher’s electricals chain Comet, its DIY chain B&Q, and health and beauty products from Superdrug.
The first outlet in the chain opened in Edinburgh this month to plaudits from analysts, with one more opening in Coventry during October. Both are 100,000 sq ft-plus sites and sources say up to 50 sites have been ear-marked for future openings.
One analyst says: “I was very impressed with the first store. I think it is a good business, which offers a great deal more than the failed Woolcos (Woolworths’ original giant store format) of the past.”
However, Big W’s expansion faces ominous competition now that Wal-Mart has come to the UK.
Asda has plans of its own for a chain of Supercentres based on the Wal-Mart “Supercentre” format that has proved so successful in the US.
Asda announced at its annual results in May that three supercentres – 100,000 sq ft-plus sites which will present an expanded non-food offer – are being planned. A spokeswoman confirms that one will be open before the same time next year.
Wal-Mart’s backing is expected to give such ventures better focus and greater buying power, resulting in even lower prices.
Mike Godliman, a director with Verdict Research, says: “If Wal-Mart builds a site right next to a Big W there is only going to be one winner, because Wal-Mart can always undercut its prices.
“The real issue is finding the space. Sites of this size come up rarely and Wal-Mart can outbid Kingfisher.”
The Asda spokeswoman says: “The fit with Wal-Mart is perfect and in all probability we will be looking at more non-food sites. But it is too early to say what detailed benefits it will give us… the supercentres were going to be pretty fantastic anyway.”
Big W’s battle with Asda for supercentre supremacy faces further hurdles and has raised the possibility of a head-on challenge between Mulcahy and Asda chief executive Allan Leighton.
Leighton, the man who until last week was being mooted as Mulcahy’s successor at Kingfisher once Asda was acquired, is now being tipped to lead Wal-Mart’s European push. It would put the Asda chief executive directly into competition with Mulcahy as he attempts to expand Kingfisher outside the UK.
They would also meet head on if Asda sets about beating Big W at its own game.
Godliman says: “Leighton is a very capable man and so is Mulcahy. It would be a very interesting battle.”
However, some observers feel that for Big W to stand a reasonable chance of resisting Wal-Mart’s UK and European onslaught, it would need access to food retail expertise.
Clive Vaughan of Retail Intelligence says: “For a major hyper market, a credible food offer is vital. Without Asda, Mulcahy’s strategy looks too much like the old Woolcos.”
Speculation is rising that Mulcahy could set his sights on one of Asda’s UK competitors. Sainsbury’s low share price and rumours that the Sainsbury family wants out of the struggling chain make it a prime target.
Others suggest foreign takeovers or joint ventures abroad would fulfil many of the criteria achieved through the Asda deal if Mulcahy is serious about building a sound food offer for continental expansion.
However, Safeway, Tesco, Sainsbury’s, or their numerous foreign counterparts would be unable to offer Kingfisher the George brand or the cultural synergies offered by the Asda deal.
The loss of such a prime asset to so fierce a competitor as Wal-Mart, particularly as the two set out to launch one-stop sheds, leaves the Big W chain in serious difficulty.